The exposure of the banks to bad real estate loans was another reason cited for the re-ratings, which saw the long-term debt and deposits fall by between one and three notches.
Moody’s move followed a bond auction for the Spanish government where yields on three-year debt rose to 4.87%, compared to 4% in a similar auction at the start of the month.
Meanwhile, yields on 10-year sovereign debt jumped to 6.3%, a high last seen in December prior to the ECB’s long-term refinancing operation which injected €1trn of liquidity in to Europe’s banking system.
Jason Gaywood, director at currency specialist HiFX, said: "This comes hot on the heels of reports of widespread withdrawals from ATM’s across Spain and Greece in the past few days – estimates suggest that up to £2bn has been removed from banks in that time.
"The danger now is that panic will set in as the population races to get their money out resulting in the self-fulfilling prophecy of a ‘run on the banks’. We witnessed this situation here in the UK back in 2008 when people queued for hours to withdraw cash from the doomed Northern Rock. The difference now is that a large number of banks and nations are affected and the risk of ‘contagion’ is acute."
The property debts burdening Spanish banks are thought to be as much as €170bn and commentators are predicting bailouts will be required from the ECB and IMF.
"This simply cannot continue indefinitely and sooner or later either the money or the will to artificially support these institutions and sovereign nations alike will run out and one gets the feeling that it is now a matter of when rather than if we will witness the break-up of the crippled euro," Gaywood concluded.